Azerbaijan's economy began its gradual recovery in 2017, and we expect this to continue over the coming quarters due to an expansion in natural gas produc-tion, coupled with a pick up in investment in the non-oil sector due to the government's improved ability to spend. We are therefore forecasting real GDP growth to rise to 1.7% in 2018 (compared with 0.1% in 2017) and 3.3% in 2019.

However, the government's plan to significantly diversify the economy will not bear significant fruit due to a lack of structural reform momentum. Long-term growth will thus remain tepid relative to historic trends, averaging 4.2% over our forecast period to 2027.

Despite relatively low oil prices, public finances will remain stable on the back of sovereign wealth fund reserves of over 92.0% of GDP.le monetary and exchange rate policies and a competitive business environment, we remain bullish on the long-term economic prospects for the UK.Key Risks

A major downside risk stems from another oil price crash, resulting in deteriorating public finances and further cuts in capital expenditure. This would halt Azerbaijan's economic recovery and likely cause another recession.

The banking sector remains weak, and continued weakness could weigh significantly on credit growth and economic activity.

Escalating tensions with neighbouring Armenia can quickly result in an all-out war between the countries.

Executive Summary

Core Views

Key Risks

Country Risk Summary

Economic Risk Index

Political Risk Index

SWOT

Economic - SWOT Analysis

Political - SWOT Analysis

Economic Outlook

Economic Growth Outlook

Azerbaijan's Economy To Recover Further Amid Improving Investment

GDP By Expenditure Outlook

TABLE: PRIVATE CONSUMPTION FORECASTS

TABLE: GOVERNMENT CONSUMPTION FORECASTS

TABLE: FIXED INVESTMENT FORECASTS

TABLE: NET EXPORTS FORECASTS

TABLE: GDP GROWTH FORECASTS

Monetary Policy Framework

TABLE: MONETARY POLICY FORECASTS

10-Year Forecast

The Azerbaijani Economy To 2027

Relatively Weak Growth Up To 2027

TABLE: LONG-TERM MACROECONOMIC FORECASTS

Political Outlook

Domestic Politics

Azerbaijan's Aliyev Victory Positive For Policy Continuity

TABLE: POLITICAL OVERVIEW

Azerbaijan Country Risk Q4 2018ContentsLong-Term Political Outlook

Everything Hinges On Nagorno-Karabakh

Global Macro Outlook

Pressure On EM Grows, As Do Divergences

TABLE: GLOBAL MACROECONOMIC FORECASTS

TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y

TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y

Index Tables

TABLE: AZERBAIJAN – MACROECONOMIC AND FORECASTS

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